Ofcom: The Office of Screwing Over Murdoch?

Analysis There are several winners in the wake of News Corp's collapsed BSkyB takeover, but the most unlikely is one we’ve all overlooked. It might surprise you, too.

In 2009 David Cameron promised a “bonfire of the quangos” if the Conservatives took power. He singled out one quango in particular: Ofcom.

The uber-regulator was created in 2003 and its grandeur and pretensions hadn’t escaped Cameron’s notice. By 2009 Ofcom had a staff of almost 900, and its chief executive was paid £400,000 – more than twice the salary of a Prime Minster.

A lot of money swished through its accounts, since the regulator had been given the responsibility of auctioning spectrum and issuing broadcast licences, and critics envisaged how Ofcom might use this money – which it returns to the taxpayer – to fund its ambitions.

The watchdog otherwise known as the Office of Communications even produced its Ofcom-branded bottled water; it’s inconceivable that, for instance, dusty US regulator the FCC could indulge in such vanity.

At times Ofcom certainly looked like a media empire in waiting: it wanted to spend £300m of taxpayers’ cash to fund a new content commissioning agency for TV in 2004, and then in 2007 it revived the PSP (Public Service Publisher) concept, but this time as a Nathan Barley-esque quango to create whizzy interactive games and websites at the public’s expense.

Ofcom CEO Ed Richards called that caper his “personal crusade”. MPs told Richards to stop dreaming of being Lew Grade, and get back to his spreadsheets.

So Cameron suggested that Ofcom, or whatever replaced it, be cut to the bone:

It shouldn't be making policy, it shouldn't have its own communications department. We could slim this body down a huge amount. Its remit will be restricted to narrow technical and enforcement roles. The policymaking functions it has today will be transferred back fully to the Department of Culture, Media and Sport.

Privately, UK Culture Secretary Jeremy Hunt is said to have mulled abolishing Ofcom altogether. Keep that at the back of your mind – but not too far away - as you read on.

Cameron’s Ofcom remarks came a few weeks before the The Sun backed the Tories. The Murdochs must have liked what they were hearing.

Shortly afterwards James Murdoch delivered the McTaggart lecture [PDF, 70KB] in which he compared belief in top-down regulation to creationism, and despaired of facing “a regulator armed with a set of prejudices and a spreadsheet”. Murdoch Jr said: “The repeated assertion by Ofcom of its bias against intervention is becoming impossible to believe in the face of so much evidence of the exact opposite.”

He had a point. BSkyB was smarting from wholesaling its content, by order of Ofcom, and the regulator was considering whether its first-run movie deals were anticompetitive.

Now wind forward to today.

We find that Ofcom hasn’t, after all, been broken up into some obscure ad hoc technical committee meeting in a room in Whitehall, as some expected. It has shed a fifth of its staff, and Ed Richards’ remuneration is still twice that of David Cameron: last year, with perks, he pocketed £363,539 but generously waived a £15,000 performance bonus.

But this quintessential New Labour wonk is still there. And Ofcom is more interventionist than ever as we can see from the emails, released by the Leveson Inquiry this week, from News Corp's chief UK envoy Fred Michel to his boss, James Murdoch.

So what happened to the axe dangling over the regulator? It’s actually wonderfully ironic.

Ministers found Ofcom too politically expedient – that’s obvious. For example, the politicians cited an Ofcom technical report on web blocking to explain why they wouldn’t implement a ban on internet traffic – even though the report didn’t recommend dropping the measure. Ministerial capture is not an unusual dynamic and it’s a staple of Yes, Minister plot lines.

But look at the Michel emails and marvel at the consequences of failing to address Ofcom. It was the Conservatives' inability to make good on their promise that came back to the haunt them.

Following the email trail

We can see from the emails between Hunt’s people and BSkyB that bods within the Culture Secretary's department clearly wanted the proposed takeover to go ahead – and that Ed Richards' Ofcom became the focal point of rival media groups and political opponents lobbying to sabotage the BSkyB takeover. The department's exasperation with Ofcom is clear from the emails.

A little background is necessary here. When News Corporation announced its intention to acquire the entirety of BSkyB, the commonest reaction was: “Er, what? You mean, they didn’t already own it?”

Nobody has ever referred to BSkyB as anything other than a Murdoch property, despite News Corp’s 39 per cent shareholding. And for regulatory purposes, that’s how Ofcom had always treated it. For example, Ofcom has a plurality test to consider, and when it came to BSkyB it had always treated it as part of Murdoch’s media group: a well-oiled organisation that owns UK newspapers. The Office of Fair Trading, the Competition Commission and the Competition Appeals Tribunal also regarded BSkyB as a Murdoch property.

As the Michel emails show, Murdoch rivals formed a coalition to fight the takeover and Ofcom became their listening post. Claire Enders, founder of Enders Analysis, took a prominent role in lobbying to block the merger. Law firm Slaughter and May were engaged by the coalition to present their joint objections, arguing that rolling TV was much more influential – even if hardly anyone watched it. Enders recruited a professor of English literature at Oxford University to browse a dictionary and produce a "true" definition of plurality.

But for Murdoch's opponents, blocking the takeover on competition and plurality grounds was always going to be a stretch. News Corp’s products do not dominate any significant market, even where they’re an important player. Virgin Media competes in Pay TV and broadband bundles, and The Telegraph competes in upmarket newspapers, for example. The Competition Commission looked at state of play in 2007 and confirmed there was no plurality issue.

So some inventiveness is required. Although rivals (such as the BBC) argued that Sky News potentially reached more than 50 per cent of the population, the number of people who actually watched is much smaller at around 5 to 6 per cent.

The threat came from hypotheticals: what if Sky bundled newspapers with broadband and TV?